I have College savings accounts for my two grandchildren totaling about $133,850 together. Since I am in my upper 80’s, upon my death, will this money be considered part of my estate whereby I would have to pay added taxes? If so, would it be better to transfer this account to my son now and have him in charge of it? I just wanted my grandchildren to know that I had given them this money when they are ready to go to college.
Terry Says: The whole idea of making the gift to the 529 on behalf of the grandchildren is to get the money out of your estate. I presume from the size of the account that you made the allowable 5x annual gift tax exclusion. As long as you live at least 5 years beyond the date of the gift, there is no issue with estate taxes.
But there is one other consideration — and I don’t know if it will make a difference to you. Money in a 529 with a non-custodial parent’s name on it is not counted as a family asset. BUT distributions are counted as if they were income to the child — resulting in a much higher financial aid impact (similar to money held in a child’s name or in an UGMA account). So remind the parents not to withdraw and use the money until the last year of college — when it won’t have a FAFSA impact on the subsequent year. Or it could be used to pay off student loans.